The record industry’s optimism should centre on direct-to-fan, says CMU’s Chris Cooke

CMU Business Editor Chris Cooke noted the renewed optimism that has been seen in the record industry of late at the top of his keynote speech at The Great Escape on Friday, though wondered whether labels are feeling more optimistic for the wrong reasons. The booming streaming market – in Europe, North America and elsewhere – may be a reason to be cheerful in the recorded music sector, but on that trend Cooke airs caution.

He said: “The streaming market is yet to prove itself, to become solid and stable. It’s a sector still in the start-up stage; these are tech starts-ups backed by venture capitalists in the pre-IPO phase of their businesses. They are being built up to be sold, either via a stock market flotation or one massive transaction, and for those start-ups that big deal is what everything is really about”.

He went on: “That’s not a criticism, that’s the tech start-up game. It’s about maximising perceived vale, which means you are primarily in the hype game, because we’re talking about perceived future value, not real value today. Streaming companies are currently loss leaders, but what happens post-IPO? That’s the big question. And that makes Pandora the most interesting digital service to watch”.

Cooke noted that since its flotation Pandora in the US has been busy trying to negotiate down the royalties it pays to the music companies – much to the annoyance of labels and publishers – but, said the CMU editor, rights owners should prepare themselves for similar demands being made elsewhere in the streaming market once all the big players go beyond their IPOs or sales and start to try and build profitable businesses. Streaming will definitely have a crucial part to play for the foreseeable future of the music industry, but quite how that will work is far from certain.

However, Cooke went on, that shouldn’t stop the optimism. It’s just that labels should be optimistic not because of streaming, but because of the rise of direct-to-fan.

“The single most exciting thing – and the biggest opportunity – in the web-era music industry is direct to fan”, he said. “In the 1990s artists didn’t know who their artists were beyond the mosh pit and fan letter. Not only that, artists’ primary business partners – the labels and tour promoters – didn’t even know who the fans were, they relied on the retailers and ticketing companies to reach the fans”.

“In the web age artists know exactly who their core fanbase are. And it seems to me that the music industry of the 1990s totally under-serviced core fanbase. The strategy of the labels – especially the majors – was we sign 20 artists, of which ten will fail, eight might break even, one is a moderate success, and one is Coldplay, which pays for everything else. But with those artists who supposedly failed, certainly the eight that broke even, there was probably a viable business if you better serviced core fanbase”.

“Because we didn’t give those fans enough opportunities to spend”, Cooke went on. “Buy one record every three years, ten pounds. Buy a gig ticket every eighteen months, £45. But what if the fan had £20 a month to spend with the artists? They weren’t given the opportunity to do so. That’s where the real value of direct-to-fan comes in. There were logistical reasons why we didn’t properly service core fanbase in the past, but the web changes that; get direct-to-fan right and there are many more opportunities to sell these fans stuff. And labels should be getting involved in those opportunities with their artists as the direct to fan experts”.

Because, Cooke concluded, that’s the music business in 2014. “You find an artist, you build a fanbase, and then you sell them shit”. Simple. You can hear the keynote in full now by clicking here, plus check out Cooke’s ‘Where We’re At’ key trends summary that opened TGE this year by clicking here.